i am only on page nine. [laughter] it was a snap judgment that you will like it but have a clear picture how the fiasco began. my wife was on the train this morning and she's read with me and i will spread the message and here is the punchline, this is important for the citizenry that blame without understanding is futile to better the nation. it is one of the present right but will hold us was so complicated, people don't understand. we have gotten anchor that is easy to understand. people should be angry but
is it focused they could have a better chance to change things for the better and it was meant to be a comprehensive look there is nothing that i did wait until 2013 to publish the book. publishers came to me in 2009. i said no. i have no idea how this will end. i would have sold more now but why now? and that is the reason. and implied by this gentleman's letter, with a gross misunderstanding of what happened and what the
government did in response is the next time anything like this happens so just imagine of europe had blown up financially six months ago but does that look likely at all right now. so we have lehman brothers from act to scenario what about another stimulus or tarpon? you can do and any piece of legislation now. people have the view it was a failure robbing us $700 million giving cash to undeserving bankers see only part is the adverb undeserving.
they did not deserve it but when the ship is sinking you make sure the ship doesn't sink. but harper was a tremendous success it caught the financial parts but they have turned to profit for the taxpayer and major they didn't go into the kind of depression scenario people were fearing in 2008 / 2009. that is just a misreading. and it could have and should have been done better.
so that hits at 330. they're out 67 percent of the time. it was tremendously successful. the whole country but especially the financial system goes back a bit too quickly. nobody is worried, that is great. but you start to see risky behavior but after the crisis there becoming braver. and they may not necessarily the one of them. but with the interpretive history, this is not journalism.
those looking to find out who was eating in the italian restaurant when he was interrupted, i don't do that. [laughter] and i don't like to be interrupted either a number of people have done that well. and there have been pieces but i try to be much more holistic and interpreted to explain to people. i will only read one sentence, did anybody get the license plate of that truck? [laughter] this is the way americans feel we got runover, they don't know why the driver was there or was not punished for running a sober
that is what we tried to deal with especially with a policy response complex, and left many americans feeling that ironically their government turned against them when it was doing good things to make sure we don't have a second grade depression. >> an economist with moody's but this is moody's analytics who wrote a paper on this very estimated that without the policy response we could be 17 percent unemployment, a rate we have not seen since the 1930's.
it would have been worse. people need to have a vague understanding of why the federal reserve did what it did and the obama administration did raise the deficit, bigger deficits are bad but there was a rationale for a stimulus package. but the biggest message of the book to me as the author is a paradox of the private markets ran amok but pretty
effectively to put things back on track but at the end of the day you witnessed a sharp backlash you call it a big government americans are against it. but there was a reason for the government intervention the likes we have not seen since the 1930's and it would have been a preview. nonetheless you did have a backlash against the government in general, president obama, it
would have been against him him, against a democratic party more generally, the federal reserve, keynesian economics which i am perfect -- prepared to defend. but what both ended the of backlash period but my favorite cartoon from the crisis appears in "the new yorker" march 2009 and it shows a page set in in medieval castle courtyard and the king said is on the chopping block. wait stop government is the solution. not the problem. [laughter] that lasted about two or three months and then people
started to think they were the problem. with the electorate really angry and it is the biggest turn in the house of representatives i think ever. you had an angry electorate in 2010. why? why was this tremendous anger directed at the government? first of all, there was a terrible slump itself. people are upset when day or friends or family members
lose jobs. the vast victims that were drug down, human beings that led them to deserved their fate to but it cannot be more than a few thousand common sense of thousands come a we have 315 million people, virtually everyone was a victim. you can count on one hand the number of people who went to jail as a result. this is in stark contract -- contrast of the savings-and-loan debacle in the '80s where 7,531,000
people -- miscreants wound up in jail. and fried, it is a high bar but i can think of only one well-known name and not even that well known but mrs. uneducated audience. this is a good audience, three people? this is way above the national average. the most prominent guy who went to jail. purdy made off was totally different. people are upset about that and we hear about this now 2013. a bank bailout will be dated the matter what, if the government does everything
perfect, it will still be hated but there are degrees of hatred. it could be us six, if the government explained better what was doing and why, including new bombing administration, the american people would still be upset that they could have a more accurate perception of what happened. if you are paying attention, there was quite a backlash from the federal reserve as it grabbed power from everywhere i remember sarah palin attacking the bernanke then attacking me lanai defended bernanke for printing many.
the federal reserve prints money? to new. but this was a revelation of big government with the is an unelected people doing all sorts of things they did not know that they could do you have the explosion of the deficit always as long as there is polling data with deficits, franklin roosevelt railed against the deficit with you look one level lower at the polling data spending on
international affairs americans oppose every single thing, any tax you name or spending other than for it -- foreign-aid and the majority is against it. it is a strong lips' service and the response ravel's whenever it imagined possible. and sure the president doesn't agree with this, but in my view, it wasn't just they did not focus like a laser beam when the economy was nowhere near as bad as
broccoli on inherited, he was doing so many things at once but one result it was very hard for the electorate to see the forest for all the trees what did heal health care reform have to do getting people back to work? not really. so people were watching this burst of activity but not receiving the excellent job the obama team did in preventing a much worse fate. i think i talk too long long, let's see what questions.
if five people have heard of lee for guess i am in trouble. [laughter] [applause]>> this is a bit of an meeting if you are comfortable saying your name, please do and line up so please have a brief question as opposed to a long speech. >> i'm a physician and an attorney people were blamed for personal responsibility but to see if people could pay for those if they chose not to look that would put more money in people's
pockets. >> you just pose one of the hardest questions. i will not equivocate on this and i will tell you why. to face up to reality the answer of your question is yes, once they were written down that would enable us to break the logjam. here's the problem given the volume of bad mortgages it done on a large scale a large fraction of the system would be insolvent then we have giant claims with the fdic with more money for the
bank bailout and it seems unlikely the taxpayer would be willing to come up without much cash. daddy's aura as giving away many and you just don't have the public support so now you could force the banks to rice -- right down mortgages a realistic values now we have 5,000 bankrupt banks. that is why i equivocate. >> my name is dick smith smith, ordinary citizen.
could you say something, i'm sure the book does where we stand now with a regulation of finance? >> we stand in the feathers sixth inning but it is not over. i think the dodd/frank legislation to the summer of 2010 is a pretty good bill. nothing at a 200319 pages long and so it has been criticized although i am an admirer but in the united
states of america of the legislation that congress passes is just beginning beginning, the regulatory agencies have to flesh out many, many details. it's not silly. congress rights legislation that is skeletal but what does that mean specifically? so regulators have to flesh it out it will be tens of thousands, it is not over yet. many are on the drawing board and fought tooth and nail by the industry, died francos some way to forcing
derivatives to be standardized on the organized exchanges. stock options are derivatives that is familiar and has been standardized to project a stand works well. won an option -- upshot is a strike price $419 that expires on your birthday, you can do that. the over-the-counter derivatives market is just the opposite. that means nobody is paying attention, no market trading , the counterparty gets in trouble then you are
in trouble committees of the dangerous ones that got us into trouble. died frank takes that on and the industry is fighting back ferociously. it has not gone far enough but it is one example of the volcker rule of things yet to be done so we don't know what the ball game will look like at the ninth-inning. >> what is the likelihood of an even more dangerous fiscal cliff lying ahead as a result of the cumulative effect of the fed's policies in particular of maintaining interest rates artificially
low are called quantitative easing. especially because recently william cohen had an article on the front page of the "washington post." this is what he said, a quantitative easing not only hurts older americans and on fixed incomes for who have saved for retirement but also younger people who can't afford to take advantage of historically low mortgage interest rates. quantitative easing helps wall street traders dynamics setting us up for another finish a crisis as investors seek out a higher yield, lower quality investments that wall street
is happy to provide. >> i don't agree with the last part i don't think people are delighted. lenders like to get more than zero i am not you or mr. cohen but low interest rates hurting people in general to live on interest i am an older american myself coming it is true and they are victims. medicine has side effects and this is one of the side effects nevertheless we still need the medicine because it is coming back to life but definitely coming back, but the last quarter
with the business investment that is necessary there is a reason for the of low interest rates that weren't bad for some people look good for others. as for the crisis, my guess is let me be specific, when interest rates are so low they could only go -- up up, that means eventually they will. is not around the corner or to bernanke at his friends
as they sit with substantial control but to there will be capital losses all over the place and at those who own bonds will suffer capital losses and if, a crucial, the risk management system of financial institutions fail anywhere near 2,008 hopefully they'll learn that lesson there will be serious losses to financial institutions. if that happens we should hit them over the head with a sledgehammer. if not then they will suffer significant losses really question is the timing and
the speed this up and wines fast but the housing double. this bond bubble ought to collapsed slowly and with ample warning. one thing i am sure of is the fed will be shouting from the rooftops months before it happens is coming. but will people be listening? if they are it will unwind unwind, and not painlessly but should not cause financial cataclysm. >> i am an ordinary citizen number two.
you talked about the efforts made by the government together to port capital so one of the results is the round of quantitative easing with the increased buying of government debt as a result the balance sheet has ballooned significantly to see this as the threats if not wound down soon enough and what is a good time line to wind down?
>> the size of the balance sheet and had to make data that? it is chapter 14. the said document to the crisis of a balance sheet roughly $1 trillion now it has about 3 trillion. the fed wants to go back to something closer at $1 trillion eventually. one point* 5 trillion, i don't know the don't have a specific target they have to unload half of their assets. is a difficult? not technically when they ask how does the fed get into this? the same way got out to buy a lot of stuff in the
marketplace, a treasury zimmer to back securities commit will get out by selling a lot of stuff. timing is crucial, they will not dump it all at once. they will not do that this is not bozos they will sell at out gradually here's the question. there is an ideal for fixed-rate to sell down the assets. no ladinos what that is including bernanke. the fed has to find that rate by trial and error. it is not selling fast enough the market will react for this is a principal reason why i am not so worried the fed will have
hundreds and hundreds of opportunities clap to adjust to it doesn't hit the rate exactly. will they get it exactly? no. the inflation target is 2% it is easy to imagine coming out 3% or 1% they could miss in either direction. that they will still too slowly but, and i think there is a symmetric danger even two percentage points but it be hard to do more than that because of feedback but to think we come out double-digit inflation, that is a bet on
a degree of incompetents items of evidence for. >> light and also in an ordinary citizen member are have a question about something you touched on earlier about lack of prosecution toward potential offenders, why do you think the government did not prosecute more people inari pass the point* to seek prosecution for potential offenders? >> i don't think so. is a bit of a frustration of mine and millions of americans to get to this job
to put off and put off you can see it do more. why not? i ask myself this for years. i has been scratching my head. one i alluded to before to prove fraud is the high bar to jump and in many cases, it may not have been a fraud, if you do with enough it is a fraud, the government has lost they could not cross the high enough barbette frankly
there is a feeling in some parts of the government taking too many executives to court would upset the market but this is more the first reason than the second. >> thank you for your years of service. we pay a big price for the polarized politics with gerrymandering and extremes going against more with a lack of compromise. has written recently the
price of politics to make a meaningful compromise compromise, however uc the interaction of politics with what should be a rational policy on the fiscal side and monetary side? >> it will be hard to answer without sounding partisan. i am a democrat. but i thank you may be familiar it is not symmetric. it is far from 50/50 and the
republican party moves far right, so far right if you abstracted from the man and imagine ronald reagan the you from a current politician, i don't think the republican party would accept this person. way to left. is not at zero also wing of the democratic party doesn't want to face the reality. it is said we have to curb entitlements. not true. health care. if we get that under control and fix social security not doing anything horrible horrible, forget about the rest of and tenements. there is hardly any money there and they don't matter.
i don't mean the next few years ago for decades, a cure the of long budget problem is with the health care cost curve going down. some democrats are dug-in doing nothing but is not the majority and not the president. looking like a grand bargain many were angry because he couldn't compromise. first diamond democrat but it is not politically realistic to fix the budget problem without revenue. $60 billion per year if there is a deficit of $1 trillion per year. the numbers don't compute
and it is unrealistic but republicans are holding to that. if you look at the long run projections it is ludicrous ludicrous, a completely impossible to think we close the gap on the tax side americans have to except taxation rates we're not swede's american will not allow 52 percent of gdp to be represented by taxes. we won't. there is a realistic long run solution it will be curbing health care spending for a wish i could tell you here are the three magic things. i can't. >> hello.
would you like to respond to steve as favorable review he asked why he had not put the financial crisis in the context of coble trade imbalance. >> i was chided for not blaming the global trade imbalance because that is not what caused it to. [laughter] we had trade imbalances for decades. it is the entire lifetime, not mine. it is decades and have nothing like what happened
of the derivatives the world is interconnected and causation runs in many directions at once but this is clearly a case where shenanigans in the united states and ireland, iceland, england coming, etc. emanated out not the rest of the world doing it to us, it is us doing it to the rest of the world what i did not blame the international trade imbalance. >> i.m. an economist. >> as opposed to an ordinary person. [laughter] i will offer a hypophysis. trying to determine the size of the stimulus package package, there was an
expectation that the gdp decline was at a certain level however the trajectory was to be steeper there for the primary criticism not too large but too small. >> i agree. if you look at what is facing us already a larger fiscal stimulus was called for with the large chunk of fiscal stimulus that would take much more than $800 billion but to put on my ordinary citizens had the
notion to pick a number 1.2 trillion dollars stimulus bill it was fanciful. item no exact maximum amount but i thank you bomb administration came close and the vote will close, rather than being stubborn we would get the best. i don't criticize and all but. >> i am an ordinary citizen but i pay taxes. [laughter] >> i am not sure i agree with your assessment but in future phd students will say
it did not need to happen. u.s. mortgage debt was 10 trillion with the all day loans of the properties are still there. even $0.50 on the dollar people holding bonds lost 500 billion on behalf were lost by the banks the reason the crisis happened is banks did not know which colleague held this stuff -- the stuff so dried up liquidity to the price fell below the underlying housing was worth. prevent then it began to threaten through capital
adequacy. it would mushroom out of control and regulators insisting on mark to market but the debt service ratio was only 17 percent everybody looked at debt to income ratio is disservice to income ratio i fear this did not have to happen with the banks showing forbearance but that said the guys who ran the banks are still there goldman sachs and aig. of this was indonesia or mexico they would have been removed. >> i agree with almost everything.
as a previous question, the mortgages the banks were holding were not marked to market for that reason. everything else was correct especially this crisis could have been avoided the not regulators forcing things to be mark to market the mistrust the lack of transparency the inconsistencies of the treatment of bear stearns and the member others which through the market for loop water the rules and the part you omitted that on top of the trillion mortgages was
built by wall street of cdo's of make believe this and that that hardly anybody including wall street banks understood and it was predicated on the music continuing to play. if house prices keep going up 10% per year through today amended rene b. but the collapse would not have been but it was the inverted pyramid of securities and derivatives that took $500 billion of mortgage losses turned into trillions
and that was crucial. that is why in the early days smart people like hank paulson and then bernanke said this is not that big and will be contained. it was only this of prime mortgages they would be right but it was a lot. >> i am at page 18 in your book. [laughter] i figure i will get the answer eventually but it is the troubled assets with bear stearns 30 billion had to be extracted to make the deal worked within the bad assets were absorbed by the government but i don't hear
any more discussion. where are they? are they still nonperforming? how big is that? >> first of all, the government did not acquire that many bad assets the huge volume by the federal reserve of mortgage backed securities and the federal reserve was somewhat picky about what it would buy basically only buying fannie for the guaranteed paper not all that was fabulous but in the and freddie had the best so that was the criteria. [laughter]
but that is what the fed bought. since then, those assets have appreciated substantially. by low, so high that is what the fed and the treasury did with aig. the fed is still holding the envious but the fed is marking it to market for good doesn't want to sell yet but it would be making a profit. here it is barely believable but i believe it's true but not only is the big portfolio showing a profit profit, but it has not
bought one single loser. compare that to my portfolio [laughter] imagine not one single loser the fed doesn't have one single loser. because it bought at the bottom that is why did that. some cases of zero and ludicrous low value. >> hello. i describe myself as a fiscally responsible democrats and it is in knowing if the helladic me year after year but virtually all of the bush should fenestration but they didn't even go to the first
day of economics 101. so now the democrats have to work out counter cave that to overlook that but my specific question in is the issue of interest rates that they have to rise at some point* and i am concerned the increase of debt service could wipe out or hamper the others. >> you are right to be concerned the interest-rate now held by the public and is one pot paying another
but held by the public is extraordinarily low they can only go a pate said go down the you would not expect it and that the event which would have been slowly would add hundreds of billions of dollars and it is not a question if it will have been it will put the question is of the timing in that series of events will wipe out a significant amount of deficit reduction the congress fights so hard in become so grudgingly to achieve this is not a happy town was budgeting for a
long time. >>. >> it could be avoided. with running deficits for no good reason, medicaid party which is a good program but others had a revenue source. but the big increase and tear obama we were fighting. >> and the bush tax -- tax cuts. how could i forget that? [laughter] [applause] >> this is the last question >> i consider myself an
ordinary citizen but i also oversee the troubled assets relief program. [laughter] thank you. i have not read the book yet but your book is welcome it has been difficult to explain these things and i am glad you are doing it and i would agree there are things we could have done better that will become clear with time it is still close but to mention in the interviews but to encourage more lending there is obvious issues if you encourage edition lending or the demand side with the
u.k.'s tried to do so i appreciate hearing your thoughts. >> the question has to do with with the original park rules were written with the bush and administration, there was no requirement that banks did anything in particular the public purpose conditions were negligible i thought there should have been some and the taxpayer could have gotten more of the upside that would have been the commercial terms of options options, we could have done better. the target during the most
good is of banks had a lending conditionality. while in normal times that is what you don't want the government to do, but when the government becomes a shareholder coming when public money is put at risk, i think the public has a right to public purpose conditionality the, the one that would do the most good was the lending. it would have been a reasonable thing to do something like just don't cut it. start there. i like to think we could have pushed further but the danger